1. Menlo Company distributes a single product. The companys sales and expenses for last month follow:

	Total	Per Unit
Sales	$ 312,000	$ 20
Variable expenses	218,400	14
Contribution margin	93,600	$ 6
Fixed expenses	74,400
Net operating income	$ 19,200

Required:

1. What is the monthly break-even point in unit sales and in dollar sales?

2. Without resorting to computations, what is the total contribution margin at the break-even point?

3-a. How many units would have to be sold each month to attain a target profit of $31,800?

3-b. Verify your answer by preparing a contribution format income statement at the target sales level.

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

5. What is the companys CM ratio? If the company can sell more units thereby increasing sales by $84,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

question 2:

Assume the following information:

	Amount	Per Unit
Sales	$ 300,000	$ 40
Variable expenses	112,500	15
Contribution margin	187,500	$ 25
Fixed expenses	45,000
Net operating income	$ 142,500

The dollar sales to attain a target profit of $180,000 is:

question 3:

Engberg Company installs lawn sod in home yards. The companys most recent monthly contribution format income statement follows:

Amount	Percent of Sales
Sales	$ 131,000	100%
Variable expenses	52,400	40
Contribution margin	78,600	60%
Fixed expenses	19,000
Net operating income	$ 59,600

Required:

1. What is the companys degree of operating leverage?

2. Using the degree of operating leverage, estimate the impact on net operating income of a 11% increase in unit sales.

3. Construct a new contribution format income statement for the company assuming a 11% increase in unit sales.

question 4:

Data for Hermann Corporation are shown below:

	Per Unit	Percent of Sales
Selling price	$ 80	100%
Variable expenses	52	65
Contribution margin	$ 28	35%

Fixed expenses are $76,000 per month and the company is selling 4,600 units per month.

2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $5 per unit and increase unit sales by 25%.

2-b. Should the higher-quality components be used?